The ZSE resumed trading on the 3rd of August after being closed for reasons that included the suspicion of counters being involved in parallel exchange rate fixing. Up to that point, the ZSE had been in a period of growth in both Zimbabwean dollar and US dollar terms that made it very attractive to a populace that had few other investment options that we’re able to outpace the rampant inflation. After reopening the ZSE has shed a lot of value, plunging 16% in the first week since resuming. A statistic that is worsened by the inactivity of three formerly fungible counters Old Mutual, PPC and SeedCo.
Once a haven for investors shares have tumbled dramatically since the reopening. A few reasons have been pointed to for this occurrence. A combination of profit-taking, investor jitters and a way out for foreign investors have come together to throw the ZSE into a very dark period. To understand how these three reasons have come together we must understand them individually.
While the ZSE was shut down because of the Old Mutual Implied Rate domestic investors would have used the parallel market exchange rate for valuing the ZSE in US dollar terms. Since the closure of the ZSE the parallel market exchange rates took a slight dip from as high as 100 depending on volumes to somewhere around 85. Currently, rates are creeping back towards the 100 mark. This relative stability gives those who had invested for profit an opportunity to take profit, in US dollar terms and run.
The ZSE also offered a good spot for short term investors looking for quick gains. At the date of closure, 26th June, the all-share index was up 677.41% year to date. That’s over 100% per month on a linear basis at a time where inflation has peaked at 38.75% month on month in the same period. So there were many short term investors in the mix. The 5-week long closure of the ZSE would’ve undoubtedly shaken their confidence and forced many to rethink the ZSE especially those who may have wanted to withdraw their money within the period of closure. Investor flight is expected in the short term.
Foreign investors have been locked into the ZSE for quite some time and not by choice. A chance to exchange control regulations, the unit of account and shortages of foreign currency forced investors to use fungible shares, particularly Old Mutual as a way to invest and divest. Buying Old Mutual shares on the Zimbabwean exchange and disposing of them in South Africa or another exchange and vice versa to buy into Zimbabwe. Earlier this year a ban on fungibility closed this avenue. The foreign currency auction system has given foreign investors a way to cash out of Zimbabwe.
The closure of the ZSE without a doubt affected everyone’s view of it. The quick reactions ranged from a fear of total loss of investment from those who were new to investment to a nostalgia inspired “it will open again” from those who experienced a similar shutdown for similar reasons in 2008. Among many other things, investors whether individual, sophisticated or institutional want to know they can freely liquidate or otherwise do with their investments as they please.
All this has to lead to massive losses on the ZSE, Just under 16% in two weeks of trading with no signs of a turnaround any time soon. A quick perusal of the spread between the bid (buyers) and ask (sellers) rates shows that there is quite some distance between the two groups valuations of counters at present. OK Zimbabwe, for example, had an asking price of around ZWL$4.80 while bids were around ZWL$4.10. Most market analysts are confident a turnaround is coming but no one dare say when they expect this.
Portfolio values will certainly reflect that the move to close the ZSE, which ultimately did not find what they alleged was happening has certainly done a lot of harm to the market and investor outlook in Zimbabwe. Results from Monday 17th August indicated another day of blood as the market shed 1.18% overall.